Britain Plans Curb On Flow, Exports Of North Sea Oil

By Leonard Downie Jr.By Leonard Downie Jr.January 4, 1980

Britain is moving to restrict production and conserve as much of its North Sea oil output for national use as possible. This move may well infuriate European nations expecting to buy oil from Britain later this year.

The decision to align British policy with the type of production controls that nations belonging to the Organization of Petroleum Exporting Countries are now discussing is a major change for the government. Britain had previously sought to exploit its recently discovered North Sea oil as quickly as possible to raise badly needed revenues.

It was disclosed offhandedly by British Energy Secretary David Howell in a wide-ranging chat with British reporters yesterday and made public here today.

Without production controls, Britain could be forced to become an importer of oil again as soon as the late 1980s. With restrictions, it may remain self-sufficient for another decade.

But if production is slowed by even 10 or 20 percent of what had been expected during the peak years of the 1980s, Britain will have substantially less oil to export to its Common Market partners in Europe, which will displease the latter. It also will make the total world oil supply that much tighter, which might displease the United States.

It also appears that Britain will displease in another way its European customers and the United States, which want to keep oil prices down worldwide. Britain may allow the price of its North Sea oil to rise sharply again to around the top-of-the market $34 to $35 a barrel charged for similar lightweight, high-grade oil by Libya, Algeria and Nigeria.

Yesterday, Howell urged the government-owned British National Oil Corp., which sets British North Sea oil prices through complicated middleman trading agreements, to use restraint in raising the price. Howell pointed out that, because Britain continues to import lower grades of oil while exporting nearly half its more expensive North Sea oil, higher world oil prices will in any case be felt here in higher gasoline prices and increased inflation.

But Howell said later that British National Oil is required by its trading agreements with oil companies to charge the going "market price" for the grade of oil produced from the North Sea. Thatcher's government is still committed to avoid direct interference with market forces.

Oil experts here expect the price of British North Sea oil to jump from $26.50 a barrel to $30 or higher, possibly with an added surcharge of several dollars more. The North African producers unofficially use a surcharge to ask more than their "official" price of $30 a barrel. If world oil prices then drop a little, as Howell believes they might during the expected recession this year, the surcharge can be reduced or removed.

Britain's partners in the European Economic Community, particularly West Germany and France, are already unhappy about the high price they pay to buy North Sea oil from their fellow Common Market member. They point out that Britain's prices exceed those of OPEC moderates, who charge several dollars less a barrel for lower grades of oil, and ask why Common Market partners cannot be given special consideration by Britain.

Some Common Market officials believe Britain's oil should be considered a "common resource" of all members, with supply guaranteed at bargain prices. The British strongly oppose this position. These officials also contend that restrictions on North Sea production could violate the Common Market's Treaty of Rome, which British officials believe is too vague to violate.

At a recent Common Market meeting, Britain blocked formal proposals that its oil production be adjusted to meet the needs of the other eight members. At a subsequent meeting of the oil-consuming countries of the International Energy Agency, Britain also blocked a suggestion that any member of that agency that is also an oil producer, such as Britain, should ensure that it did not push up world oil prices.

North Sea oil is the only bright spot in the ailing British economy. Oil exports make it possible to balance Britain's foreign trade budget. Its revenues help keep income and sales tax rates from rising higher. Temporary oil self-sufficiency gives Britain time to develop conservation programs, as well as goal and nuclear energy, before it becomes a net oil importer again.

One of the first hints that Prime Minister Margaret Thatcher's government might try to prolong the life of this valuable resource by slowing oil production during the 1980s came in an important speech by Britain's influential ambassador to the United States, Sir Nicholas Henderson, at San Francisco's Commonwealth Club a little more than a month ago.

"If we do not take effective action," Henderson said, "we could find ourselves again becoming a net buyer of oil at a time when oil supplies will be scarcer."

Defending what is usually called a "political decision" to restrict production when taken by an OPEC country, Henderson said, "This term is a misnomer. It tends to suggest that such decisions are taken for purely political reasons -- to exert political pressure or fear.

"In reality," Henderson said, "producing governments are, by and large, having to make economic judgements based on their own assessments of how long their oil reserves will last, how much revenue they need and the rate at which the oil will appreciate in value if left in the ground.

"I know this because my own government has to grapple with economic questions of this kind. They arise regardless of politics."

Britain is only beginning to discover as Henderson's speech indicated, that its actions on North Sea oil production and prices have important foreign policy repercussions. Only now are its government departments making and circulating studies of the effect British oil policies might have on its relationship with the Common Market or the United States, or of the fact the Britain might be seen as using oil as a diplomatic weapon."

Howell, the energy minister, will add a new dimension to this policy formulation next week when he visits Kuwait, Saudi Arabia and possibly Iraq to talk about oil prices and production, and to explore ways to ensure future oil supplies to Britain after its North Sea oil begins to run out.